January 02, 2012

Circuit Court Has Primary Jurisdiction in WC Coverage Questions

January 02, 2012

Hastings Mutual Insurance Company v Ultimate Backyard, LLC et al. No. Nos. 1-10-1751, 1-10-3001 (consolidated)

The claimant, Javier Vasquez, was injured while working for Ultimate Backyard and filed a claim at the IWCC.  Ultimate’s carrier, Hastings Mutual, began to pay benefits under a reservation of rights but later withdrew its acceptance of the claim and sought declaratory judgment, claiming that it had no duty to defend or indemnify Ultimate Backyard.  Hastings also filed a motion to stay the underlying proceedings before the Commission.

Hastings argued that it had properly complied with Section 4(b) of the Act in canceling the policy issued to Ultimate Backyard.  Hastings alleged that the case involved statutory interpretation: whether it complied with Section 4(b) of the Act when it sent a notice of cancellation to NCCI, the organization which receives and maintains certificates of insurance and notices of termination of coverage for the Commission.  Meanwhile, the case proceeded to trial at the Commission, prompting Vasquez and Ultimate Backyard to argue that the motion to stay filed in the Circuit Court was moot and should be dismissed.

The Circuit Court granted the motion to dismiss, holding that the Commission had valid authority to decide the coverage issue.  The circuit court found that under the doctrine of primary jurisdiction, the factual questions which needed to be determined were being properly resolved at the Commission.  The circuit court held further that whether the policy of insurance was properly cancelled was a matter uniquely suited to the specialized and technical expertise of the Commission.  Hastings Mutual took an appeal.

On appeal, the court acknowledged that both circuit courts and the Commission have concurrent jurisdiction in coverage cases.  Hastings Mutual maintained that the courts have primary jurisdiction unless the legislature has divested the courts of jurisdiction or if the Commission has the specialized or technical expertise required to resolve the controversy.  Hastings argued that the legislature had not divested the circuit court of jurisdiction to interpret insurance contracts nor did such an interpretation require the expertise of an administrative agency.

Hastings Mutual also argued that the notice of cancellation was logged in at the Commission and that the only question to be determined was whether this complied with the statute.  Vasquez and Ultimate Backyard argued that the issue before the circuit court was a question of fact, namely, whether the policy had been cancelled. This determination was well within the authority of the Commission.

The Appellate Court reversed and ordered a stay of proceedings before the Commission on the underlying compensation claim until the issue of whether there was proper notice of cancellation was decided by the Circuit Court.   It noted that the doctrine of primary jurisdiction provides that even when the courts have jurisdiction judicial proceedings should be stayed pending referral of a controversy to an administrative agency, but this is proper only where the agency has specialized or technical expertise or where there is a need for uniform administrative standards. Courts are well versed in interpreting insurance contracts and this type of question does not require any specified expertise possessed by the Commission.  Since interpreting Section 4(b) of the Act is a legal question best answered by the courts and one not requiring specialized expertise associated with an administrative agency, the Commission did not have primary jurisdiction over the claim.


Hastings Mutualwas issued under Rule 23 and thus cannot be cited as precedent.  This is unfortunate because Hastings can resolve questions the WC community has regarding how, when and where coverage disputes should be resolved.  A close reading of Hastings reveals that if a claimant proceeds to a final decision at the Commission on a coverage question, unless that decision is appealed by the carrier a declaratory judgment action filed after the Commission award will fail.  The appellate court referred to Casualty Insurance Company v Kendall Enterprises, Inc., where the carrier sought declaratory judgment after the coverage question was decided by the Commission.  Kendall held that the Commission’s administrative findings of fact could not be contested under those circumstances and permitted the claimant to win the ‘race’ to the courthouse.

Hastings Mutualargues for the opposite approach which is that the courts should determine whether notice of cancellation has been properly made per the statute. Hastings has a somewhat convoluted procedural history but the essence of it is that there was no finding by the Commission on the notice of cancellation issue.  The lesson of Hastings Mutual is that waiting for the outcome of a coverage dispute at the Commission will probably not serve the interests of the carrier.